The Markets July 12, 2007

Emerging Markets Perform Well in Q207

Second quarter returns of the world’s emerging markets outpaced that of the developed markets, according to Standard&Poor’s global stock market review, The World By Numbers.
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An S&P news release said emerging equity markets rose 14.81% during the second quarter of 2007 versus 6.82% for developed equity markets. Over the past 12 months, emerging markets have returned 49.8% compared to 24.4% posted by developed markets.

During the second quarter, 23 of the 25 emerging markets finished in positive territory with an average gain of 16.99%, while Jordan (-8.21%) and Russia (-0.61%) both showed losses, according to the release. Among developed markets, 26 of 27 posted gains during the second quarter averaging 10.74%, with Japan as the lone decliner at -0.97%.

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For the month of June, 18 of the 25 emerging markets posted positive gains averaging 3.28%. Hungary and China posted double-digit gains of 11.22% and 10.59% respectively. Argentina (-3.26%), Jordan (-2.93%) and Morocco (-2.61%) all showed losses for the month.

Fourteen of the 27 developed markets posted an average gain of 0.65% in June. Ireland (-4.80%), Spain (-2.54%) and Switzerland (-2.35%) showed substantial declines. Slovenia posted an increase of 12.79% for the month, resulting in a 109% 12-month gain over the 12-month period.

The World By Numbers report for June can be accessed at www.standardandpoors.com/indices.

The Markets July 12, 2007

'Human Capital' Asset Allocation Concept Gets Patent

Ibbotson Associates has received a patent on its portfolio creation technique for individual investors based on the concept of human capital - an investor’s future potential savings.
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An Ibbotson news release said the portfolio construction method balances an investor’s financial capital and human capital. The company said it defines financial capital as an investor’s current savings while human capital is an investor’s future potential savings. That future savings, the news release said, “is often the single largest asset an investor has.”

According to the announcement, younger investors have far more human capital than older investors because they have a longer time in which to earn and save.

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The company said younger investors should hold their financial capital in more aggressive investments to balance out that large allocation to human capital. Older investors, on the other hand, have less human capital and should guard their financial capital with a larger concentration in conservative investments, Ibbotson said.

The company said the human capital concept was developed by Peng Chen, president and chief investment officer of Ibbotson Associates; Roger Ibbotson, founder of Ibbotson Associates and professor of finance at Yale School of Management; and Mike Henkel, former president of Ibbotson Associates.

“Andre Agassi and I are the same age and we may even have the same risk tolerance, but that doesn’t necessarily mean we should have the same asset allocation,” Chen said. “An investor’s tolerance for risk and age should not be the only factors that determine asset allocation in a portfolio. One’s current financial situation and future earning ability—financial capital and human capital, respectively—play a large role.”

Ibbotson said the newest patent is its second for its asset allocation techniques.

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